I have been digging into the issue some more and I'm afraid I have found a bug. I have debugged the VtolAutoTakeoff module after looking at the code and I could see the following:
When I go through the procedure and raise the throttle to mid range, the state machine goes all the way to "Take off", so I would rule out any errors there. However, if I look at the thrust, I can see that this is increased to max 0.2% and the VelocityDesired->Down is locked at 0.6 m/s. If I disarm and arm again then the thrust goes all the way to 0.8% and the VelocityDesired->Downswitches starts changing and it gets negative (in line with what I expect).
However, while on the ground and the quad disarmed, this happens only if I flip the switch from a stabilized mode to AutoTakeOff. Instead if I have my flight mode switch set to position hold and I switch to AutoTakeOff, this issue is no longer there and the quad takes off. Could you please verify if you experience the same behavior? Let me know if I can provide more details to sort this out